Buying Step 5: Offers, Counteroffers and Negotiation
When you are ready to buy, you will need to make a written offer. REALTORS® have standard purchase agreements (Agreement of Purchase and Sale) and will help you put together a written, legally binding offer that reflects the price as well as terms and conditions that are right for you. Your REALTOR® will guide you through the offer, counteroffer, negotiating and closing processes.
THE MAJOR ELEMENTS OF AN OFFER
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PRICE - Depending on local market conditions, your opinion of value and market information provided by your REALTOR®, the price you offer may be different from the sellers asking price.
"How Much Should I Offer?"
This tends to be one of the most frequent questions any buyer, first-time or veteran, asks! You sometimes hear that the amount of your offer should be x percent below the seller's asking price or y percent less than you're really willing to pay. In practice, a successful offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order. How does the home compare to others you have seen? Your REALTOR® will help you determine a suitable offer price.
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DEPOSIT - The deposit is given upon acceptance of your offer, shows your good faith and will be applied against the purchase price of the home when the sale closes
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TERMS AND CONDITIONS - Includes the total price offered and the financing details. You may arrange your own financing or ask to assume the seller's mortgage, especially if it has an attractive interest rate. Conditions might include "subject to home inspection", "subject to obtaining financing" or a host of other things.
While much attention is given to offering prices, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value for buyers - or additional costs. Terms are extremely important and should be carefully reviewed; they may include a deposit, contingency deadlines for inspection and/or mortgage approval, payment of closing costs, etc. Buyer offers often contain contingencies or “subject to” clauses that must be met before the contract is considered binding. This gives you time to take care of final details. Contingencies can include the following:
- approved financing
- buyer selling an existing home
- satisfactory home inspection report
- test results for environmental factors including radon, mold and water quality
- termite inspections
- easements
- liens
Work with your REALTOR® to determine which contingencies you should include for your home buying situation. For a list of common Terms and Conditions, click here.
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INCLUSIONS & EXCLUSIONS - These might include appliances and certain fixtures or decorative items such as window coverings or mirrors. Make sure EVERYTHING you think is included is spelled out in the agreement. There are also times when you DO NOT certain items that the seller wants to leave. This should be made equally clear in the Offer.
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CLOSING or COMPLETION DATE - This is the date that you agree to take possession and start paying for your new home. It will be negotiated with the seller as part of the deal process.
How Do You Make an Offer?
When it comes time to make an offer, your REALTOR® can provide current market information and will assist you in drafting your offer. Once written and signed, your REALTOR® will then present it to the owner and the owner's representative. Sometimes there may be more than one offer on a property coming in at the same time. Your REALTOR® can guide you through this process should it occur.
Your offer can be Firm or Conditional.
Firm Offer to Purchase: usually preferable to the seller, because it means that you are prepared to purchase the home without any conditions. If the offer is accepted, the home is yours!
Conditional Offer to Purchase: means that you have placed one or more conditions on the purchase, such as "subject to home inspection" or "subject to financing". The home is not sold until all the conditions have been met.
For a detailed explaination of the Agreement of Purchase and Sale, click here.
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Your offer will be presented to the seller as soon as possible. The seller may accept the offer, reject it, or submit a counter-offer
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The counter-offer may be in reference to the price, the closing date, or any number of the other provisions of the offer.
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The offer can go back and forth until both parties agree or one of you ends the negotiation
What is a Counteroffer?
A counteroffer is nothing more than a new offer with different terms, but it shows that the Seller is willing to work with you! Offers and counteroffers reflect the back-and-forth activity of the marketplace. It's a common, efficient and practical process, but also one that may contain tricky clauses and hidden costs. Because of this, and because counteroffers are common, it's important for buyers to remain in close contact with their REALTOR® during the negotiation process so that any proposed changes can be quickly reviewed.
How Do You Negotiate?
No aspect of the home buying process is more complex, personal or variable than bargaining between buyers and sellers. This is the point where the value of an experienced REALTOR® is clearly evident because he or she knows the community, has seen numerous homes for sale, knows local values and has spent years negotiating realty transactions.
Real estate bargaining typically involves compromises by both sides. It's not war; it's not winner-take-all. Instead, negotiating should be seen as a natural business process: buyers should be treated with respect, and owners should never lose sight of either their best interests or their baseline transaction requirements, which must be met before the home can be sold.
There are a lot of considerations, not just price, in making and negotiating offers. This is where the working with an experienced REALTOR® can guide you to a win-win negotiation.
To get started on your journey to home ownership, Contact me.